Contractor’s obligations and liability act, Finland
The Act on ‘The contractor’s obligations and liability when work is contracted out’ requires that the party responsible for a construction project obtains the necessary guarantees that subcontractors will fulfil their various obligations. The law has been in effect since 2007, but obligations in the construction sector were amplified in 2012.
The Act on ‘The contractor’s obligations and liability when work is contracted out’ was introduced in the Parliament on 8 September 2006 (number 114/2006). It was passed on 28 November 2006 and became effective law on 1 January 2007 (law number 1233/2006). The Act has been amended several times since. The most recent amendments were given to the Parliament on 22 March 2012 (number 18/2012) and passed on 12 June 2012, to take effect on 1 September 2012.
The measure was introduced at a time when subcontracting was both expanding in the construction sector as well as spreading into other sectors. Previously, the contracting party was not required to do a background check on the subcontractors, which facilitated the use of undeclared work, among other things. The most recent amendment is based on observations that undeclared activity in the construction sector is both becoming more international as well as more serious in its consequences. The legislation originally exempted established subcontracting relationships from a background check, but this has hampered the enforcement of the legislation. Accident insurance has also been previously omitted from items that are being checked.
The objective of the original legislation as well as the 2012 amendments is to combat undeclared economic activity and promote fair competition between companies, particularly in the construction sector. Long subcontracting chains lead to situations where work was being carried out without withholding employee taxes, making VAT payments, making pension payments or observing conditions laid out in collective bargaining agreements. The legislation placed the responsibility on users of subcontractors to determine that employers meet their obligations.
The measure places obligations, with some exceptions, on parties that either subcontract other companies or use workforce supplied by an employment agency. Contracting parties are required to ask for and obtain documents that verify certain registrations and payment of taxes as well as a reference to an applicable collective bargaining agreement or corresponding conditions. Depending on the results of the background check, contracting may be subject to penalty. The contracting party must inform its employee representatives of subcontracting or the use of employment agency workers. The Act is limited to work taking place on the premises or site of the contracting party by employees of a subcontractor or an employment agency.
Occupational health and safety authorities monitor compliance with the law and have the power to impose penalties for violations. The measure is in effect indefinitely and doesn’t have a specific budget. In the 2007 budget, the Parliament did, however, approve €700,000 for extra personnel to be hired for the purposes of enforcing the law. The main 2012 amendments that apply to construction activity remove certain exemptions from the law, increase the penalties and add accident insurance to items that must be verified.
The main actors are companies that utilise subcontracting or employment agency workers on a large scale, particularly in the construction sector (primary builders). Occupational health and safety authorities monitor that obligations are being fulfilled and take action in case of violations. Labour unions and employee representatives also have a role monitoring conditions at workplaces. Employer organisations have also taken an active role in distributing information on the obligations required by this Act. Other government authorities also have a role in producing the documentation on which subcontracting or the use of employment agency workers is to be based.
Outcome of evaluations; lessons and conclusions
Achievement of objectives
An early evaluation of the measure found that the law and its contents were quite well known, although this questionnaire-based evaluation also revealed some companies that were unaware of them (predominantly small companies). There was more uncertainty of the law’s applicability in different sectors and situations, but most respondents regarded it as useful in raising the issue of employer obligations and undeclared economic activity in contracting decisions. Monitoring the working conditions of outside workers was rare at the time, as were requests for the information by employee representatives.
Obstacles and problems
One problem identified by the respondents of the early evaluation was added work for contracting companies. Although the law was seen as generally useful, specific impacts were considered more certain as respondents saw ways of getting around its requirements. Getting required information on foreign companies has been identified as a problem, and the penalties have been viewed as being too low for some situations. As construction work carries one of the highest risks of accidents, the omission of accident insurance from documents to be requested has also been considered a problem.
The experiences from the Act’s early years have been taken into account in amendments to it. The 2012 amendments, which apply to construction, set the penalties between €16,000 and €50,000 in light of contract sizes (otherwise, €1,600 and €16,000 with an adjustment for inflation). As neglecting accident insurance has been found to be common in undeclared construction activity, documentation of accident insurance has been added to the Act’s requirements. Finally, the exemption for established companies and business relationships has been dropped for construction, since it has been difficult to verify.
The 2010 enforcement information cites 872 investigations by the authorities (50% in the construction sector). In total, 2,541 contracts were examined and about half of them were outside the Act’s scope. By March 2011, penalties totalling €302,500 had been imposed based on the 2010 investigations.
The measure is national and applies generally, although due to its restrictions it is most notable in the construction sector. The law’s operation is dependent on prompt availability of reliable documentation, which enables contractors to fulfil their obligations. Similar requirements have existed in other countries prior to Finland.
Informational site of occupational health and safety authorities: http://www.tyosuojelu.fi/fi/etela_tilaajavastuu
Informational site of the employer organisation Rakennusteollisuus: http://www.rakennusteollisuus.fi/RT/Ty%c3%b6markkinat/Tilaajavastuulaki/
Alvesalo, A. and Hakamo, T. (2009), ‘Valvontaa ja vastuuta ulkopuolisen työvoiman käyttöön – tutkimus tilaajavastuulain toteutumisesta’, Työ- ja elinkeinoministeriön julkaisuja, Työ ja yrittäjyys 51/2009, available at http://www.tem.fi/index.phtml?C=101926&s=4288&xmid=4197.
Työ- ja elinkeinoministeriö (2011), ‘Talousrikollisuuden ja harmaan talouden torjuminen rakennus- sekä majoitus- ja ravitsemisalalla -työryhmän mietintö’, Työ- ja elinkeinoministeriön julkaisuja, Kilpailukyky 17/2011.
Simo Virtanen, Finnish Institute of Occupational Health